BigClassActions.com
Advertisement

Student Loans Scam? Attorney Weighs In

- by

Birmingham, ALIf you’ve had—or have--a student loan, “creative accounting” practices by private institutions may have negatively impacted your financial situation—and you don’t even know it! Attorney Tyler Vail of Hollis, Wright and Couch says this practice is widespread at many private lending institutions nationwide—and may constitute consumer fraud.

You may not even know who is servicing your student loan. “We are finding that third party servicers, such as large banks and private student loan companies are taking advantage of the consumer,” Vail explains. “We are currently investigating these servicers for claims such as excessive and unwarranted late fees.”

Vail says these servicers can also change the status of certain loans. “If you are paying more than the required monthly payment they will reclassify your loan and put it in a pre-paid status,” Vail adds, “and if they put you in a pre-paid status they will no longer send you a monthly bill or statement. Instead they will let the loan sit there accumulating additional interest, without any direction from you.”

This is how it works... Say that I am paying off my student loan at $100 per month, or so I think. The minimum payment that I was told when I took out the original loan was $100. I want the $100 to go toward my loan as planned, as the amortization schedule is understood. But if I choose to pay $250 per month to pay it off faster I expect that additional $150 will go directly to the principal. Here is the problem: the creditors are not doing that.

Instead, that additional $150 is being applied to future minimum $100 payments. Say that I make payments of $250 in January, February and March. I am just paying future interest to the next payments after April. So my loan principle is never going down, it stays the same.

You never get ahead.

“Another issue we are looking into is that the servicers are not following the original amortization schedule that you agreed to when you took out the loan in college,” says Vail. “They are not applying the correct amount to principal. If your original schedule had a certain percentage of your payment going to the principle and a certain percentage going to interest, it appears that they are unilaterally changing the percentages so more goes to interest over time and less to principle.”

It’s a multi-billion dollar industry. Vail says that the average student loan debt for undergrads is almost $30,000. For graduate students the news is much worse. Graduate students may take out $100,000 or more in student loans by the time they finish school. Interest rates vary from as little as 3 percent for government-funded loans up to 11 percent for loans from the private sector. So why go to a private loan company?

As many college students painfully know, you may only quality for $7,500 in tuition for a government loan so you have to go to the private loan sector for any additional education costs over that amount and that is where these issues stem from.

“The government loans carry a very low interest rate, set by the government,” says Vail. “The private sector varies rates considerably based on a number of variables such as the amount of your loan, your credit score, etc.” (The private sector goes largely unregulated.) “The servicers of the student loans can service both government and private loans under the same roof.”

So part of your monthly payment is suppose to go toward your government loan and another part of your payment is suppose to go toward your private loans.

As you can imagine, these private service companies who make their money off of the interest on these loans are the same entities who are controlling the allocation of your monthly payments. In some instances, it appears these companies are allocating more money to the low interest loans, thereby keeping the principle of the high interest loans for as long as they can thereby making more money for themselves and keeping the customer in debt longer than necessary.

Say I have a $5,000 government loan and a $5,000 private loan. Within two years, more of my payments were allocated to the 3 percent government loan while the principle balance of my 11 percent private loan has remained about the same but it is accruing much higher interest. Most individuals don’t have any knowledge of that happening.

And here is another issue, this one going back in time several years…

“When loans are bought and sold in the outside markets, the new purchaser of these loans will usually conduct an “account review” to determine if there were any missed problems with the loans by the prior owner of the loans,” Vail explains. “If they are able to uncover any missed issues or errors by the prior service provider they will come back to you and hold you accountable. Sometimes many years after the issue arose.”

Say you were late on a payment in 2009 and the prior servicer waived the late fee or decided to let it go, the new servicer is coming in and saying we are raising your interest rate because you were late on a payment three years earlier. Now your interest rate will go up, plus they will charge you late fees from 2009.

“Some of our clients have contacted us regarding different issues with their student loans,” Vail adds. “As we began to look into these allegations, we found some interesting accounting procedures taking place by the private loan companies.”

That’s a polite way of putting it. Stay tuned.

Legal Help

If you or a loved one have suffered losses in a similar case, please click the link below and your complaint will be sent to a consumer frauds lawyer who may evaluate your claim at no cost or obligation.

Reader Comments

Posted by

on
I've been paying on my student loan with ACS for close to 10 years now. My principal has not gone done. All my high monthly payments continue to go to interest which never goes anywhere.

My question is, if I just stop paying will it affect my credit at all? I'm not in hardship. I work full-time, not in the field I got my loan for to study, but at this rate my payments are very high, the interest is not going down, the principal is not going down and I don't see an end in sight.

This ACS is a nightmare.

Posted by

on
I made the mistake of consolidating my student loans with Wells Fargo, who moved me over to ACS Education. it has been pure hell dealing with this company. When I lived in Jacksonville, I was not making much money, so I submitted paperwork, so that I could get a hardship deferment on my student loan. ACS reverted it to a forbearance, so that they could roll the interest upward. This went on for about 10 years. I now have very high amount due for my student loans. Last year, I submitted all of my paperwork from 2014, so that I could begin making payments. I also work in Public Service. They failed to tell me that I would not be using the public service paperwork that I submitted. I had to submit my paperwork three times. Though I submitted it in a timely manner, they did not process it correctly until my third submission. I raced to make loan payments, but by then ACS had me delinquent by one month. I kept trying to correct the situation. They turned me over to Educational Management Credit Corporation, who recommended that I have my student loans consolidated through one of the direct loan programs because ACS did not handle these programs. In conclusion, they turned me over to a credit bureau because of the delinquency in processing my paperwork. I am now have my student loans consolidated through Great Lakes.

Posted by

on
We consolidated our FFEL into a Direct Consolidated loan in 11/21/2005. For some odd reason, which has just been brought to our attention ACS reverted it back to FFEL consolidated 60 days later, 1/17/2006. We have thought we were paying on a Direct Loan Consolidation for 10 years. We have over 120 IBR payments made. We qualify for the Loan forgiveness program, but now ACS tell us that we have and FFEL loan instead of a Direct Loan, and we do not qualify nor do our 10 years of payments. Why would it ever revert back 60 days later without our knowledge. Is this an error on ACS. How do we receive retribution. We have never missed a payment. Our loan is growing daily. I've been told that in July they stopped allowing FFEL to be consolidated to Direct because it was not profitable for lenders. Did they do this to save their skin? HELP.

Posted by

on
I consolidated two student loans in January of 2002 for a total of $40,431.24. As of today I still owe $35,407.64. I don't understand that paying $308.00 a month for all this time has only paid $5,024 towards the loan. My interest rate is 6.250. Where can I go for some help with this issue.

Posted by

on
I am on Income Based Repayment with ACS. I also have another loan with a different lender. Recently, it was time to submit my yearly documentation to my lenders to renew my IBR status. While my other lender received and approved my documentation and application, ACS did not. They also did not contact me until significantly much later to tell me they rejected my application.
Now, I'm trying to scramble around and try to submit again, not really sure what else they would need as I was approved by my other lender. I tried calling the ACS call center and as usual, the people working there are of no help. It's just a nightmare to deal with ACS-- how many hoops do I have to jump through to get things done? I am also being charged late fees although I make on time payments each month. I have tried calling about this and again, none of the ACS call center people can explain to me why I am being charged a late fee even though I am paying on time? I am so sick of dealing with ACS and their shady practices. I'd love to learn more about how I should handle these situations.

Posted by

on
My name is Caroline Russ. Like many people, I too have issues with ACS Education. They have been the servicing my student loans since 2005. I recently entered repayment last year because I want to resolve my account. I work in public service, which means that I have to also complete paperwork with my employer and submit it to ACS. I did this last year and submitted a copy of my previous income tax return for 2014. This seemed an acceptable procedure last year. i do have to admit that I had to submit my paperwork twice in order to get this miracle to occur. Ironically, the area in which I work is actually financial aid, so I faxed all of my paperwork to them twice. Yesterday, I received another bill for $1300.00. I submitted my previous paperwork and copies of my pay stubs to them. My question is how many loops do I have to jump through before my paperwork is processed by them? Doing all of this is very stressful when the least they could do is actually process my paperwork correctly. The bigger issue is I have to continue doing this for nine more years to get student loan forgiveness for working in public service. Nine more years of hell is more than I can stand right now.

Posted by

on
I consolidated my loans through ACS in 2005. I've been paying on my loan for 10 years with the exception of the time I had been on forbearance due to financial and health issues. My original loan was a bit over 11K and after 10 years of paying - a bit over 6K, over 4k in interest and around 1,600 - I find I still owe over 10K! I attempted to put extra money on the principal and was told I cannot do that, it goes towards future interest. When I got the loan originally, I was told I could pay extra on the principal anytime in order to get the loan down faster. I've asked if I can make a settlement and the first level agent said since it is a Stafford loan, it cannot be settled. I need to know if this is true. I've asked to be escalated to the next level. Is there any real help out here? I'm now 61 yrs old and will end up paying close to 30k+ for a 10K loan.

Posted by

on
I consolidated with ACS years ago, i have a 4% fixed loan. Over the past 8 years i have paid $25k toward a $50k loan but only $7k has been applied to principal. At this rate i will pay $250k in order to pay back a $50k loan. How is this legal?

Posted by

on
Owe $90,044.81 scheduled for offset. Colorado community college advised that funds were no longer available about half way through flight training. Was on dean's list with 3.13 GPA. Left school in 1996. With pilot's wages around $100,000 yearly average, say for 13 years I've lost about $1,300,00 in wages, not to mention irreparable suffering from inability to have family, piece of shit cars, electricity shut off, imposing on family, etc. If my wages have been say $25K a year over this period, I'd estimate my lawsuit should be about $1,000,000.

Posted by

on
I am a current student a private institution who completed my Masters requirements in Dec. 2012. I returned to the same institution to close out an open graduate certificate. With that being said I sought student loan help through the institution where qualified for $10,250 loan to pay my tuition for summer session 1(April 21, 2013-June 27, 2013). The loan paid for 5,000 around the 3rd week of May and I received a credit for $1,703. Suddenly during my 6th wk into the semester the Financial dept contacted me by phone telling me my loan was no longer valid and that I would be responsible for my $3,337 effective immediately and that if it is not paid the account would immediately go into collections. I various conversations with department heads throughout the week of 6/10-13 but no resolution was found. This week is my 7th week of the semester thus far I have achieved "A" and a "B+" for the semester which is what I expect to be the end result. I received a call from the office of enrollment today offering drop class as a resolution or be charged with the full tuition. At this point I have come too far to submit. I feel as though I have been victimized behind the University's mistake. Please advise

Add Your Comment on This Story

Please read our comment guidelines before posting.


Note: Your name will be published with your comment.


Your email will only be used if a response is needed.

Request Legal Help